Press Release: IMF Approves EFF Credit for the Republic of Gabon
November 8, 1995The International Monetary Fund (IMF) today approved a three-year credit under the extended Fund facility (EFF) for the Republic of Gabon equivalent to SDR 110.3 million (about $165 million) in support of the Government's economic program for the period July 1995-June 1998.
Performance under the 1994 stand-by credit with the IMF was broadly satisfactory. The devaluation of the CFA franc was supported by appropriate fiscal, income, and credit policies, and through the implementation of a number of tax, price, and structural reforms. As a result, the price increases that followed the devaluation were contained, while output growth and the turnaround in the external current account balance exceeded program targets. In the structural area, however, adjustments in utility charges and improvements in efficiency in major public enterprises were delayed.
The Medium-term Framework and the 1995/96 Program
Gabon's medium-term policy objectives are to accelerate output and employment growth through a diversification of the economy and the establishment of a more liberal regulatory framework to stimulate the development of the non-oil private sector. Consistent with this strategy, the main macroeconomic objectives for 1995-98 are to achieve an average real GDP growth of about 3 percent a year; lower inflation to 2 percent by 1998; and maintain current account surpluses ranging from 3 percent to 4 percent of GDP. Within this medium-term framework, the objectives of the program for the first year of the extended arrangement, covering the period July 1995-June 1996: (a) to accelerate real GDP growth to about 3 percent during 1995-96; (b) lower average consumer price inflation to 11 percent in 1995 and 5 percent in 1996; and (c) to contain the overall balance of payments deficit to 8.7 percent of GDP in 1995 and 7.2 percent of GDP in 1996. To achieve these objectives, fiscal policy will aim at limiting the overall budget deficit, on a commitment basis, to 0.6 percent of GDP in 1995 and achieving an overall surplus of 1.7 percent in 1996 through an increase in both oil and non-oil revenue and a modest reduction in current expenditure. Monetary policy will be geared toward effectively controlling domestic credit expansion in the face of rapidly rising bank deposits with the regional central bank.
Structural Reform Policies
The Government will undertake a broad range of structural reforms to unlock Gabon's growth potential in the non-oil sector. In particular, the authorities will improve the efficiency and financial performance of public enterprises; reform the civil service; and liberalize the legal and institutional framework by revising the labor code, enacting a competition law, updating business legislation, and adopting a new investment code. The Government will also undertake the privatization and restructuring of key public utilities, and finalize privatization plans for the agricultural and commercial public enterprises. In addition, the authorities intend to contain, if not reduce, the size of the civil service.
Addressing Social Costs
A National Employment Office has been set up to provide employment counseling, training courses, and support services to job seekers. It will also facilitate the redeployment to the private sector of the employees likely to be dismissed from the public sector; the latter employees will be provided with appropriate compensation benefits. To help alleviate the impact on the most vulnerable groups of the value-added tax, introduced in April 1995, a small additional number of essential consumer goods have been exempted from this tax, and retail prices of medicines have been lowered by 10 percent through tax adjustments.
The Challenge Ahead
Gabon has accomplished substantial progress, but much remains to be done to simulate the supply side. Because of limited absorptive capacity, the challenge is to accelerate structural reform. A lasting solution to the unemployment problem hinges on the success of the efforts to improve the environment for the development of the non-oil private sector and bring about a withdrawal of the State from directly productive activities. Gabon will also continue to face sizable, albeit declining, financing gaps during the period 1995-98. These gaps are expected to be fully covered by additional reschedulings of eligible debt-service obligations by Paris Club and other creditors.
The Republic of Gabon became a member of the IMF on September 10, 1963; its quota1 is SDR 110.3 million (about $165 million), and its outstanding use of IMF credit currently totals SDR 45 million (about $67 million).
Sources: Gabonese authorities; and IMF staff estimates.